The KOSPI fell almost 11 percent on Tuesday, then dropped as much as 12.6 percent on Wednesday and triggered a 20-minute trading halt before recovering to close down 6 percent. SK Hynix lost 9.6 percent after falling nearly 20 percent intraday, even though it had just reported the strongest quarter in its history.
The easy explanation is that investors no longer believe in the AI memory cycle. But SK Hynix said customer requests remain strong, confirmed that HBM4 mass shipments have begun and reported record revenue and operating profit. The company missed unusually aggressive forecasts, delayed some expected HBM4 revenue and offered no detailed shareholder-return plan, so investors had legitimate reasons to mark the shares lower. The operating results just don’t explain why so much of the Korean market had to fall with them.
By the time earnings arrived, the KOSPI had become unusually dependent on SK Hynix and Samsung Electronics, which together represented more than half of its market value. A broad investment in Korean equities was therefore carrying far more semiconductor exposure than the index label suggested, while retail investors had added borrowed money and single-stock leveraged products to the same narrow trade.
That structure made the rally stronger because rising prices attracted more capital, increased the value of investors’ collateral and made additional leverage easier to carry. But it also changed what would happen when prices stopped rising.
As losses accumulated, brokers began closing positions for investors who could no longer meet their obligations, and leveraged products added selling pressure to shares that were already declining. Investors who might have waited for the next earnings report or the next increase in memory prices no longer controlled the timing of their exit. The earnings miss gave them a reason to sell, while leverage removed their ability to wait.
A broader collapse in AI demand or market funding would have traveled farther. Taiwan Semiconductor fell 3.5 percent and the SOXX semiconductor ETF lost roughly 4.9 percent, but the S&P 500 still gained modestly, European equities rose outside technology, and investment-grade and high-yield credit ETFs finished slightly higher. The damage remained concentrated in semiconductor exposure, and it was most severe in the market where that exposure had been combined with extraordinary index weight and borrowed money.
Korean policymakers are now being pulled into a problem that began with private risk-taking. The finance minister apologized before parliament for the introduction of single-stock leveraged ETFs, and the government is reviewing regulatory changes and market-stabilization measures after products intended partly to keep investor demand in the domestic market helped intensify the losses.
Restricting those products may reduce the force of the next unwind, but it won’t remove the demand for leverage. It could instead reduce liquidity in Korean shares and push more speculative capital toward overseas products, leaving regulators to choose between a less violent domestic market and a smaller one.
The next few earnings reports will help separate the health of the AI cycle from the condition of the Korean trade. Microsoft and Meta will provide another read on cloud demand, capital spending and cash generation, while Samsung will offer a direct test of memory pricing and demand. Strong reports would support SK Hynix’s account of the business, though they may not be enough to stop the selling if Korean investors are still being forced out.
I’m watching whether the KOSPI and its largest chipmakers can stabilize before margin balances and leveraged exposure decline materially. If buyers return while that leverage is still in place, then the market has found enough fundamental demand to absorb the forced supply. If stability arrives only after borrowed positions have been cleared, the decline will have shown that Korea’s AI boom had become dependent not only on better earnings, but on the continued availability of financing to own them.